Labor Pains Bring Newborn Verizon Into Spotlight

August 09, 2000|By Jon Van.

Verizon Communications has been doing just about everything possible to grab attention for itself by running extensive advertising and announcing some high-profile deals.

Unfortunately for the company, however, in recent days it has been gaining a lot more attention as the target of a major strike by union employees. Its stock has suffered, too, dropping 11 percent on Tuesday alone.

Whether Verizon's birth as the nation's largest local phone company will be tainted by its initial labor unrest will depend upon whether the strike is settled quickly or if it drags on and becomes ugly, several telecommunications experts said Tuesday.

"The juxtaposition of Verizon's high profile and the strike is certainly unfortunate," said Robert Rosenberg, president of Insight Research Corp., a telecommunications market research firm based in Parsippany, N.J. "If you look at technology businesses, telecommunications is the only sector with any significant union presence."

The strike by 87,000 employees in Verizon's local wireline business on the East Coast has had almost no impact on phone service in the rest of the country, though it has generated considerable interest.

Verizon was born in June after the merger of Bell Atlantic Corp. and GTE Corp. was approved. Its major presence in the Chicago area is through Verizon Wireless, the leading cellular phone service in this region and the nation's largest wireless system.

In Chicago, the company has launched an ad blitz to alert customers about the new name for what used to be called Ameritech Cellular, and Verizon is doing this in dozens of other cities where it was known under brand names such as Bell Atlantic, PrimeCo and GTE. The campaign is estimated to cost tens of millions of dollars.

Although the wireless business is the new company's most ambitious foray into the high-tech future, it isn't the only one.

On Tuesday Verizon announced that it is taking over NorthPoint Communications Group, a large, San Francisco-based phone service specializing in providing digital subscriber line (DSL) high-speed data connections. The $800 million NorthPoint deal came a day after Verizon announced the takeover of OnePoint Communications Corp., a Lake Forest-based DSL provider, in a deal valued at $250 million.

Verizon is aggressively promoting its name in an effort to position itself as a high-tech player in the public mind, said Michael Brown, a Chicago-based executive with Answerthink Inc., an electronic business consultancy.

"Verizon is struggling with its traditional business and how to handle that as it positions itself as a high-tech firm," Brown said. "I predict they'll make some short-term concessions to the unions to settle this strike quickly, because if there's a long strike, it will drain the company and stall its efforts to remake itself."

There is a stark contrast between Verizon's goal of promoting a new brand-name, high-tech company and the path taken by SBC Communications Inc., which continues to use the Ameritech brand name here and Pacific Bell in California instead of rebranding its acquisitions.

"SBC has chosen a different path," Brown said. "It doesn't want to rock the boat but to build a financial empire instead."

If Verizon's labor troubles, which are in their third day, become too protracted, the firm might consider putting its traditional East Coast wireline local-service business into a separate subsidiary, he said.

Verizon's unions--the Communications Workers of America and International Brotherhood of Electrical Workers--have made organization of Verizon's largely nonunion wireless business an issue in negotiations. The firm's acquisitions to boost its DSL profile could eventually become an issue as well.

Many workers who install DSL lines for Verizon are union members, said Lawrence Babbio, Verizon's vice chairman and president, and that will continue to be the case once the NorthPoint deal is closed sometime next year.

But NorthPoint's workers aren't unionized, said Liz Fetter, the NorthPoint CEO who will continue to run the operation after the merger.

"Our workers have stock in the company," she said. Though some unionization may occur once the merger concludes, Fetter said, that "unionization certainly won't spread automatically."

Verizon's strike, disappointing earnings results and its acquisition activity haven't played well with investors. The firm's stock price was down $5.37 Tuesday, closing at $42.50.

If Verizon and its unions settle the strike soon, as many experts predict, the impact of the labor dispute will be negligible, said Andrew Lubetkin, a Winnetka-based consultant.

"As long as Verizon offers good prices for wireless service and their service here isn't affected, customers won't pay much attention," Lubetkin said. "If the strike drags on, that could change."